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James G. McConnell
Attached to the unemployment benefits extension legislation signed last week by President Obama is an extension of IRS tax loss carry back time limits from the former 2 year time period to a new period of 5 years, for tax year 2008 or 2009, whichever of those two years a particular business may choose. This legislation is expected to produce mammoth tax refunds for home builders, who are in dire need of the additional capital to survive the economic downturn in the housing market.
According to National Association of Home Builders President Jerry Howard, “This injection of capital will enable a lot of our members, a significant number of small and medium sized builders that have been hanging on by their fingernails, to keep their doors open, and hopefully with this increased stimulus and demand from the tax credit, to be able to get back on their feet and get the country moving forward again.” Business Round Table Housing Working Group chairman Richard Smith said of the Senators and Congressmen who supported the operating loss carry back extension, “I think their intent was to ensure survival of these firms, so they can live to grow another day.”
Including construction, retail and manufacturing businesses hardest hit by the drop off in consumer spending, the net operating loss carry back extension is expected to produce tax refunds of $33.2 billion. Residential construction contractors who will get the biggest benefits from this legislation include Beazer Homes USA, Standard Pacific Corp., Hovnanian Enterprises, Brookfield Homes, Pulte/Centex, KB Home, toll Brothers, Lennar Corp. and DR Horton. Several of these builders are expected to get tax refunds larger than their total market capitalization.
Meanwhile, Tuesday morning’s economic outlook remains bleak, especially for the unemployed, according to both San Francisco Federal Reserve President Janet Yellen and Atlanta Federal Reserve President Dennis Lockhart, both of whom are predicting several years of jobless economic recovery. According to Yellen, “Our recovery is likely to feel like something well short of good times.” Lockhart echoed the prediction that the economic recovery won’t be strong enough to encourage employers to add to payrolls or recall laid off workers.
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